ENERGY

Much at Stake as Energy Department Weighs Permits for Exporting Natural Gas

Christopher Smith, the Energy Department official in charge of shaping the Obama administration’s policy on exporting natural gas, recalls working for Chevron on an import facility during the first part of the last decade. At the time, U.S. reserves were thought to be scarce and fuel prices were accordingly high.

“That business model completely turned around,” Smith said in a recent interview with National Journal Daily. “It’s given me an understanding of how quickly markets can evolve.” In a 127-page decision published Friday, Smith announced that the administration had approved the second of more than 20 applications pending at the Energy Department to export natural gas.

Smith is expected to face a barrage of questioning on this decision when he testifies during a forum Tuesday before the Senate Energy and Natural Resources Committee. Nine others will testify, but he will be the star witness as lawmakers, energy producers, manufacturers, and environmentalists scramble to find out what factors are driving administration policy and how many more export permits Smith might approve.

“We have what I think is a great dilemma, which is: How do we best and most prudently take advantage of what is a tremendous and important resource?” said Smith, 45, who was born in California and grew up in Fort Worth, Texas.

This “great dilemma” Smith speaks of demands the attention of almost every corner of the energy sector and environmentalists, too. Companies producing natural gas, like Chesapeake Energy and ExxonMobil, and those involved in building export terminals, like Dominion, are urging the administration to approve more permits. Manufacturers such as Dow Chemical, meanwhile, are benefiting from the near-record-low natural-gas prices of the last few years, and they worry that exporting too much of it could force a spike in prices akin to what the United States saw in the last decade. Some environmental groups, led by the Sierra Club, are opposed to all exports of the fuel because they oppose hydraulic fracturing, which is controversial for its environmental impact but key to extracting the gas from shale.

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Smith leads the small team within the Energy Department’s Office of Fossil Energy that’s tasked with finding the right balance among all of these competing concerns. A spokesperson didn’t say how many people are working on this, but people outside the administration involved in the regulatory-review process say it’s a small number, possibly in the single-digits.

“There’s a small group at DOE who suddenly find themselves in the middle of all this,” said Bruce McKay, managing director of federal affairs at Dominion.

Despite the number of applications pending before the office, the Obama administration’s budget for fiscal 2014 proposed a decrease of 1.5 percent for the import/export authorization program within the Fossil Energy office, from the current $2.12 million funding level to $2.08 million.

Smith says his priority is to work toward the goals laid out by the president, including reducing oil imports by a third over the next 10 years, and doing it in a way that doesn’t jeopardize safety or the environment where the energy is produced.

“Our job is to make sure the people who live and work in the communities where these wells are being drilled have the confidence that we take their concerns seriously,” Smith said.

President Obama might call out big oil from time to time, but that’s exactly where Smith was plucked from in 2009 to work under the newly inaugurated president. Smith worked for two major oil companies, Texaco and Chevron, during a span of 11 years starting in 1998. While at these companies, he focused much of his time on natural-gas trading and also spent three years negotiating production and transportation agreements in Bogota, Colombia.

“I did a lot of risk and commercial work around figuring out the best way to optimize producing energy overseas and bringing it to the United States,” Smith said.

Now, with the United States awash in shale natural gas, he finds himself not only in an opposite energy landscape but also on the opposite side of the issue: inside the government trying to find the sweet spot instead of inside a major oil company seeking to maximize profits.

“In the work I’ve done with him, I’ve always known him to be very open-minded on the question of environmental challenges associated with gas production,” said Brownstein, who has worked with Smith on a couple of federal advisory boards related to natural gas. “In some ways, he’s more knowledgeable about some of these challenges specifically because he’s worked in the industry and has seen some of the challenges firsthand.”